Interim Results

Arbuthnot Banking Group PLC 18 September 2007 ARBUTHNOT BANKING GROUP PLC Results for the six months to 30 June 2007 Arbuthnot Banking Group PLC ('Arbuthnot') today announces interim results for the six months to 30 June 2007. Arbuthnot is the holding company for Arbuthnot Securities Limited, Arbuthnot Latham & Co Limited and Secure Trust Bank PLC. Financial Highlights Six months to Six months to 30/6/2007 30/6/2006 Increase Operating income £34.8m £29.2m +19% Profit before income tax £5.4m £3.8m +43% Profit before tax and exceptional items £5.4m £4.1m +33% Basic earnings per share 18.0p 14.3p +26% Net assets £43.1m £36.8m +17% Commenting on the results, Henry Angest, Chairman and Chief Executive of Arbuthnot, said: 'Arbuthnot Banking Group made good progress in the first half of 2007. We are particularly pleased that Arbuthnot Securities again substantially raised its profits and Arbuthnot Latham has had a good first half.' Press enquiries: Arbuthnot Banking Group PLC: Tel: 020 7012 2400 Henry Angest, Chairman and Chief Executive Andrew Salmon, Chief Operating Officer Paul Sheriff, Group Finance Director Maitland: Tel: 020 7379 5151 Emma Burdett Lydia Pretzlik Operational Highlights Investment Banking - Arbuthnot Securities • Total income of £14.2m in first six months (2006: £10.8m) • Profit before tax up 83% to £4.0m (2006: £2.2m) • 22 transactions in first six months of 2007 (2006: 10 transactions) Private Banking - Arbuthnot Latham • Profit before tax of £1.4m in first six months (2006: £0.1m) • 21% deposit growth and 23% loan book growth compared to first half 2006 • Significant profit from property transaction fees Retail Banking - Secure Trust Bank • Profit before tax and investment expenditure reduced by 20% to £2.8m in first six months (2006: £3.5m) • Business re-branded to Moneyway and enhanced 'OneBill' product launched in June • Partnership with Everyday loans for unsecured lending Switzerland • Chief Executive started in July 2007 • Swiss Bank to be operational in early 2008 (subject to regulatory approval) CHAIRMAN'S STATEMENT I am pleased to report that Arbuthnot Banking Group made good progress during the first half of 2007, with profits before tax increasing by 43% over the first half of last year to £5.4 million. The growth in pre-tax profits was driven by significant advances at both Arbuthnot Securities and Arbuthnot Latham. This is a pleasing result overall, especially considering that the Group is undertaking a substantial programme of change at Secure Trust Bank. Earnings per share rose by the lower amount of 26% to 18.0p per share, as a result of an increasing contribution from Arbuthnot Securities resulting in a higher minority interest charge, combined with the increased number of shares following the rights issue in 2006. The interim dividend is maintained at last year's level of 10.5 pence and will be paid on 26 October 2007 to shareholders on the register at 28 September 2007. Arbuthnot Securities The profit before tax of Arbuthnot Securities in the first half of the year rose 83% to £4.0 million (2006: £2.2 million). This was achieved from gross revenues of £14.2 million, 31% ahead of the corresponding period last year. Revenue growth has been strong from both the primary and secondary business. Arbuthnot Securities completed 22 transactions during the first six months of the year (2006: 10 transactions), including 3 IPOs (2006: 3 IPOs). The number of retained corporate clients has risen to 74 at the end of June from 71 at the beginning of the year and has subsequently risen to 79. Arbuthnot Latham Arbuthnot Latham's pre-tax profits rose by £1.3 million to £1.4 million principally due to increased property transaction fees. Progress continues to be made with customer deposits growing by 21% and the loan book by 23% compared with the first half of 2006. I am pleased to welcome Mike Bussey who joins on 1 October as the new Chief Executive of Arbuthnot Latham. Mike has 30 years' banking experience in retail, corporate and private banking. He was Chief Executive of the Private Banking and Trust business at N.M. Rothschild & Sons Ltd for four years, prior to which he had been Chief Executive of Schroders Private Banking. Previously, Mike worked at HSBC for over 20 years in various senior managerial positions across Europe, the Middle East, South East Asia, Africa and the Americas. Secure Trust Bank The investment programme at Secure Trust Bank gathered pace during the first half of the year, with progress being made on product redesign, operational processes and updating systems. The highlight of the first six months was the re-branding of the business as Moneyway in June. The turnaround in Secure Trust Bank is proving to be more protracted than expected and the benefit of the investment and re-branding is likely to be seen in 2008. Secure Trust Bank has continued to apply stricter criteria for unsecured lending, resulting in lower volumes of new business and a fall in the division's net interest income of 14% compared with the first half of 2006. This has been accompanied by a 14% fall in bad debt experience. A partnership has commenced with Everyday Loans whereby a significant proportion of unsecured lending is referred to Everyday Loans rather than being undertaken by Secure Trust Bank. Progress is also being made on increasing the level of mortgage advisory business. Overall performance for Secure Trust Bank was a first half fall in pre tax profit of 33% to £2.4 million compared to the corresponding period in 2006. This result reflects additional costs incurred ahead of revenue growth and a £0.4 million cost for the investment programme. Revenue has declined by 7% due to the continued reduction in customer numbers and the lower income from unsecured lending. Switzerland Progress in establishing the Switzerland operation continued and it is anticipated that the regulatory submission will be made in the second half of 2007 and subject to regulatory approval, the Swiss Bank should commence operation in early 2008. Staff and Management I am delighted to welcome to the Board Sir Christopher Meyer, who is also Chairman of the Press Complaints Commission. Sir Christopher had a distinguished diplomatic career, having joined the Foreign and Commonwealth Office in 1966. In 1997 he was appointed as Ambassador to Germany and from 1997-2003 he was Ambassador to the USA. Between 1994 and 1996, Sir Christopher was Press Secretary to Prime Minister John Major. Sir Christopher joins on 1 October and I believe his experience and expertise will be a significant contribution to the Group's development. As detailed above, Mike Bussey joins the Board on 1 October and will be Chief Executive of Arbuthnot Latham. John Reed, becomes a Vice Chairman of Arbuthnot Latham and takes up the newly created Group role of International Business Development Director. Outlook All divisions of the Group have traded profitably in both July and August despite difficult market conditions. Looking forward, the corporate finance pipeline in Arbuthnot Securities is healthy although volatile markets may impact both the outcome and timing of individual transactions. The diversified nature of the Group continues to serve us well and the Board is cautiously optimistic about the outlook. Henry Angest Chairman 18 September 2007 CONSOLIDATED INCOME STATEMENT Profit Profit before before exceptional exceptional exceptional Exceptional items items items items 6 months 6 months 6 months 6 months 6 months 6 months to 30.06.07 to 30.06.07 to 30.06.07 to 30.06.06 to 30.06.06 to 30.06.06 £000 £000 £000 £000 £000 £000 Interest and similar income 11,186 - 11,186 9,083 - 9,083 Interest expense and similar charges (5,455) - (5,455) (4,388) - (4,388) -------- -------- -------- -------- -------- -------- Net interest income 5,731 - 5,731 4,695 - 4,695 -------- -------- -------- -------- -------- -------- Fee and commission income 26,554 - 26,554 23,474 - 23,474 Fee and commission expense (213) - (213) (559) - (559) -------- -------- -------- -------- -------- -------- Net fee and commission income 26,341 - 26,341 22,915 - 22,915 -------- -------- -------- -------- -------- -------- Net trading income 2,707 - 2,707 1,596 - 1,596 -------- -------- -------- -------- -------- -------- Operating income 34,779 - 34,779 29,206 - 29,206 -------- -------- -------- -------- -------- -------- Gain on sale - - - - - - of Arbuthnot House Impairment losses on loans and advances (1,019) - (1,019) (838) - (838) Operating expenses (28,351) - (28,351) (24,286) (304) (24,590) -------- -------- -------- -------- -------- -------- Profit before income tax 5,409 - 5,409 4,082 (304) 3,778 Income tax expense (1,623) - (1,623) (1,262) 91 (1,171) -------- -------- -------- -------- -------- -------- Profit for the period 3,786 - 3,786 2,820 (213) 2,607 ======== ======== ======== ======== ======== ======= Attributable to: Equity holders of the Company 2,691 - 2,691 2,228 (162) 2,066 Minority interest 1,095 - 1,095 592 (51) 541 -------- -------- -------- -------- -------- -------- 3,786 - 3,786 2,820 (213) 2,607 ======== ======== ======== ======== ======== ======= Earnings per share for profit attributable to the equity holders of the Company during the period (expressed in pence per share): - basic and fully diluted 18.0p - 18.0p 15.4p (1.1)p 14.3p CONSOLIDATED INCOME STATEMENT (CONTINUED) Profit before exceptional Exceptional items items Year to Year to Year to 31.12.06 31.12.06 31.12.06 £000 £000 £000 Interest and similar income 19,168 - 19,168 Interest expense and similar charges (9,042) - (9,042) ---------- --------- --------- Net interest income 10,126 - 10,126 ---------- --------- --------- Fee and commission income 47,787 - 47,787 Fee and commission expense (4,241) - (4,241) ---------- --------- --------- Net fee and commission income 43,546 - 43,546 ---------- --------- --------- Net trading income 4,102 - 4,102 ---------- --------- --------- Operating income 57,774 - 57,774 ---------- --------- --------- Gain on sale of Arbuthnot House - 12,623 12,623 Impairment losses on loans and (1,986) (2,900) (4,886) advances Operating expenses (47,559) (3,212) (50,771) ---------- --------- --------- Profit before income tax 8,229 6,511 14,740 Income tax expense (2,092) (1,953) (4,045) ---------- --------- --------- Profit for the period 6,137 4,558 10,695 ========== ========= ========= Attributable to: Equity holders of the Company 4,833 4,558 9,391 Minority interest 1,304 - 1,304 ---------- --------- --------- 6,137 4,558 10,695 ========== ========= ========= Earnings per share for profit attributable to the equity holders of the Company during the period (expressed in pence per share): - basic and fully diluted 32.8p 31.0p 63.8p CONSOLIDATED BALANCE SHEET 30.06.07 30.06.06 31.12.06 £000 £000 £000 ASSETS Cash 173 109 181 Loans and advances to banks and building societies 21,163 32,535 54,214 Trading securities - long positions 14,316 8,189 9,095 Loans and advances to customers 176,333 151,074 155,594 Debt securities held-to-maturity 120,315 87,170 105,961 Intangible assets 3,091 2,917 3,025 Property, plant and equipment 10,304 30,882 10,638 Investment securities available for sale 4,360 - 5,856 Other assets 31,354 50,640 22,730 --------- --------- -------- Total assets 381,409 363,516 367,294 ========= ========= ======== LIABILITIES Deposits from banks 7,195 23,143 7,729 Trading securities - short positions 5,667 4,340 2,303 Deposits from customers 281,648 246,367 270,448 Debt securities in issue 10,106 10,207 10,106 Other liabilities 32,932 40,405 29,886 Current tax liabilities 474 1,171 3,486 Deferred tax liabilities 252 1,116 35 --------- --------- -------- Total liabilities 338,274 326,749 323,993 --------- --------- -------- EQUITY Share capital 150 150 150 Share premium account 21,085 21,085 21,085 Retained earnings 17,270 10,117 17,866 Other reserves 1,402 3,395 1,402 -------- --------- -------- Capital and reserves attributable to the Company's equity holders 39,907 34,747 40,503 Minority interest 3,228 2,020 2,798 -------- --------- -------- Total equity 43,135 36,767 43,301 -------- --------- -------- Total equity and liabilities 381,409 363,516 367,294 ========= ========== ========= CONSOLIDATED STATEMENT OF CHANGES IN EQUITY Attributable to equity holders of the Company Share Share Other Retained Minority Total capital premium reserves earnings interest account £000 £000 £000 £000 £000 £000 Balance at 1 January 2006 143 17,115 3,395 11,111 1,312 33,076 Sale of minority interest in Arbuthnot Securities Limited - - - - 171 171 Issue of shares 7 3,970 - - - 3,977 Profit for 6 months - - - 2,066 541 2,607 ended 30 June 2006 Final dividend relating to 2005 - - - (3,060) (4) (3,064) ------- ------- ------- ------- ------- -------- At 30 June 2006 150 21,085 3,395 10,117 2,020 36,767 Release on sale of freehold premises - - (2,828) 2,828 - - Release of deferred tax on sale of - - 835 (835) - - freehold premises Sale of minority interest in Arbuthnot Securities Limited - - - - 16 16 Profit for 6 months - - - 7,325 762 8,087 ended 31 December 2006 Interim dividend relating to 2006 - - - (1,569) - (1,569) ------- ------- ------- ------- ------- -------- At 31 December 2006/1 150 21,085 1,402 17,866 2,798 43,301 January 2007 Profit for 6 months - - - 2,691 1,095 3,786 ended 30 June 2007 Purchase of minority interest in Arbuthnot - - - - (74) (74) Commercial Finance Limited Final dividend relating to 2006 - - - (3,287) (591) (3,878) ------- ------- ------- ------- ------- -------- At 30 June 2007 150 21,085 1,402 17,270 3,228 43,135 ======= ======= ======= ======= ======= ======= CONSOLIDATED CASH FLOW STATEMENT 6 months to 6 months to Year to 30.06.07 30.06.06 31.12.06 £000 £000 £000 Cash flows from operating activities Interest received 11,186 9,083 19,168 Interest paid (5,455) (4,388) (9,042) Fees and commissions received 26,341 22,915 43,546 Net trading and other income 2,707 1,596 4,102 Recoveries on loans previously written off - 7 10 Cash payments to employees and suppliers (28,351) (23,621) (51,816) Taxation paid (4,418) (790) (2,470) --------- ---------- --------- Cash flows from operating profits before changes in operating assets and liabilities 2,010 4,802 3,498 Changes in operating assets and liabilities: - net increase in trading securities (1,857) (1,251) (4,194) - net increase in loans and advances to customers (21,758) (11,768) (17,439) - net decrease in other assets (8,661) (21,692) 3,797 - net decrease in deposits from other banks (534) 13,953 (1,461) - net increase in amounts due to customers 11,200 6,934 31,015 - net increase in other liabilities 3,046 13,407 2,927 --------- ---------- --------- Net cash from operating activities (16,554) 4,385 18,143 ========= ========== ========= Cash flows from investing activities Purchase of investments 1,496 - (3,435) Purchase of minority interest (74) - - Disposal of minority interest - 171 187 Purchase of property, plant and equipment (448) (598) (2,253) Purchase of computer software (221) (43) (428) Proceeds from sale of property, plant and equipment 434 331 34,244 Purchases of debt securities (150,362) (41,199) (139,481) Proceeds from sale of debt securities 185,272 60,155 122,648 --------- ---------- --------- Net cash from investing activities 36,097 18,817 11,482 ========= ========== ========= Cash flows used in financing activities Issue of shares - 3,977 3,977 Repayment of debt securities - (2,509) (2,610) Dividends paid (3,338) (3,064) (4,633) --------- ---------- --------- Net cash used in financing activities (3,338) (1,596) (3,266) ========= ========== ========= Net increase in cash and cash equivalents 16,205 21,606 26,359 Cash and cash equivalents at beginning of period 83,718 85,146 57,359 --------- ---------- --------- Cash and cash equivalents at end of period 99,923 106,752 83,718 ========= ========== ========= NOTES 1. Business Segments 6 months to 30.06.07 Retail Private Investment Group Subordinated Group banking banking banking costs loan stock total £000 £000 £000 £000 £000 £000 Segmental operating income 11,573 9,259 14,196 93 (342) 34,779 -------- ------- -------- -------- -------- ------- Segment profit 2,371 1,386 3,965 (1,971) - 5,751 Subordinated loan note interest - - - - (342) (342) -------- ------- -------- -------- -------- ------- Profit before exceptional items 2,371 1,386 3,965 (1,971) (342) 5,409 Exceptional items - - - - - - -------- ------- -------- -------- -------- ------- Profit before income tax 2,371 1,386 3,965 (1,971) (342) 5,409 -------- ------- -------- -------- -------- ------- 6 months to 30.06.06 Retail Private Investment Group Subordinated Group banking banking banking costs loan stock total £000 £000 £000 £000 £000 £000 Segmental operating income 12,495 6,246 10,808 - (343) 29,206 -------- ------- -------- -------- -------- ------- Segment profit 3,621 113 2,376 (1,685) - 4,425 Subordinated loan note interest - - - - (343) (343) -------- ------- -------- -------- -------- ------- Profit before exceptional items 3,621 113 2,376 (1,685) (343) 4,082 Exceptional items (99) - (205) - - (304) -------- ------- -------- -------- -------- ------- Profit before income tax 3,522 113 2,171 (1,685) (343) 3,778 -------- ------- -------- -------- -------- ------- Year to 31.12.06 Retail Private Investment Group Subordinated Group banking banking banking costs loan stock total £000 £000 £000 £000 £000 £000 Segmental operating income 24,236 13,555 20,631 - (648) 57,774 -------- ------- -------- -------- -------- ------- Segment profit 6,759 341 4,959 (3,182) - 8,877 Subordinated loan note interest - - - - (648) (648) -------- ------- -------- -------- -------- ------- Profit before exceptional items 6,759 341 4,959 (3,182) (648) 8,229 Exceptional items (3,358) 12,366 (274) (2,223) - 6,511 -------- ------- -------- -------- -------- ------- Profit before income tax 3,401 12,707 4,685 (5,405) (648) 14,740 -------- ------- -------- -------- -------- ------- 2. Earnings per ordinary share Basic and fully diluted Earnings per ordinary share are calculated on the net basis by dividing the profit attributable to the equity holders of the Company of £2,691,000 (30.06.06: £2,066,000; 31.12.06 £9,391,000) by the weighted average number of ordinary shares 14,943,944 (30.06.06: 14,485,171; 31.12.06: 14,716,433) in issue during the period. 3. Basis of reporting The interim financial statements have been prepared on the basis of accounting policies set out in the Group's 2006 statutory accounts. The statements were approved by the Board of Directors on 17 September 2007 and are unaudited. The auditors have not carried out a review of the interim financial statements. The interim financial statements will be posted to shareholders and copies may be obtained from The Company Secretary, Arbuthnot Banking Group PLC, Arbuthnot House, 20 Ropemaker Street, London, EC2Y 9AR. 4. Results for the year ended 31 December 2006 The figures for the year ended 31 December 2006 are derived from the Group Accounts for the year. A copy of the Group Accounts for that year, on which the auditors gave an unqualified opinion, has been delivered to the Registrar of Companies. This information is provided by RNS The company news service from the London Stock Exchange

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